10 Jun, 2024

Prime Minister Highlights Economic Growth Despite Challenges

Amidst ongoing economic difficulties, Prime Minister Sonexay Siphandone reported a 4.7 percent growth in the country’s Gross Domestic Product (GDP) in the first half of 2024, reaching LAK 148,043 billion (USD 6.8 billion).Sonexay highlighted this development at the ongoing 7th Ordinary Session of the National Assembly (NA) on 10 June. He noted a substantial improvement in revenue collection, which has bolstered the government’s capacity for expenditure. As of June, the collected revenue amounted to LAK 25,957 billion (approximately UAS 1 billion), reflecting a 64 percent increase compared to the same period last year.The growth is primarily driven by increased activity in tourism and related services, transportation, and wholesale and retail sales. Additionally, expanded agricultural production, along with contributions from the construction and processing industries, have positively impacted the economy.Despite this progress, the depreciation of the Lao kip continues to grow. At the end of May, the kip had weakened by 3.98 percent against the US dollar and by 2.96 percent against the Thai baht compared to the end of last year.Sonexay said that the Lao government has been working to lower the inflation rate, which remains high at an average of 25.1 percent over the first five months of this year, with an expected average of 25 percent for the remaining six months, far exceeding the government’s target of 9 percent by the end of 2024.The NA’s Standing Committee acknowledged the strides made in economic progress but highlighted areas requiring enhancement. Despite the projected GDP growth, inflation remains a concern, noted NA Vice President Sommad Pholsena. “Income per capita, when converted into foreign currency and calculated against inflation, has declined,” Sommad said. Additionally, while revenue collection surpassed expectations, it constituted only 8.8 percent of GDP, when considering the currency exchange rate and revenue base.According to Sommad, budget allocation for state projects and debt servicing is slow, and agricultural support policies are weak. Additionally, local farm production hasn’t reduced imports as needed. He emphasized the need for streamlined procedures to help farmers access financing, noting that while bank deposits are 63 percent of GDP, few loans have been issued.The Standing Committee also raised other notable pressing issues particularly the decline in secondary school and university enrollments, alongside a rising dropout rate and teacher resignations, stressing the urgency of improving educational quality. Moreover, the migration of labor out of the country has exacerbated labor shortages, prompting calls for government intervention to address the issue effectively.As the session progresses, social media users are urging the Lao government to take concrete action on the issues raised. Many users voiced their frustration, stating that while the government has discussed these problems for years, there has been little to no improvement.The session will run until 2 July, engaging in discussions primarily centered on strategies to tackle the nation’s persistent challenges such as inflation, school dropout rates, teacher and labor shortages, and drug trafficking.

05 Jun, 2024

Human Capital, Green Sustainability: Two Priorities for Laos’ Future Economic Model

Laos is currently facing challenges transitioning from commodity-driven growth to a more inclusive prosperity model, reveals a new report from the Organisation for Economic Co-operation and Development (OECD).The report, titled “Multi-dimensional Country Review (MDCR) of Lao PDR,” was launched on 6 June in Vientiane Capital. It highlights the country’s development journey, noting sustained economic growth of over 7 percent annually from 2000 to 2019, driven by strong commodity exports and substantial external financing.The report shows that foreign direct investment (FDI) increased in Laos from USD 187.4 million in 2006 to USD 1.69 billion in 2017. During this period, extreme poverty dropped from 25 percent to 7 percent, while household income, education, and healthcare also saw significant improvements.However, Laos now faces challenges with its current development model, worsened by the impact of COVID-19, which has increased food and energy prices. Debt-financed investments, including public-private partnerships (PPPs), have fueled growth, but slow government revenue growth hinders the country’s ability to manage its growing debt and invest in human capital.Moreover, economic growth and investment have been unevenly distributed, with certain sectors and state-owned enterprises (SOEs) dominating opportunities. Most of the workforce is still in informal sectors, and environmental issues including deforestation and air pollution continue.To address these challenges, the report suggests a shift towards human capital development and green sustainability. This includes reducing the debt burden to create fiscal space, reforming the tax system to boost revenue, improving access to resources and infrastructure to attract sustainable investments, and increasing investment in education, healthcare, and social services.Additionally, the report also emphasizes the need to enhance data collection and institutional capacity for green and climate finance, along with improving coordination among government agencies and development stakeholders.As Laos navigates this critical juncture, the adoption of comprehensive reforms outlined in the MDCR could pave the way for a more resilient and sustainable future.